Indonesia Real Estate Law – Guidelines for Issuing and Reporting Asset Backed Securities in the Form of Participation Letters Within the Framework for Secondary Housing Financing

Background

Financial Services Authority (“OJK”) issued a regulation, namely Financial Services Authority Regulation No. 23/POJK.04/2014 Year 2014 on Guidelines for Issuing and Reporting Asset Backed Securities in the the Form of Participation Letters Within the Framework for Secondary Housing Financing (“POJK 04”). This regulation came into force since 19 November 2014.

This regulation aims to support the secondary mortgage and provide a choice of investment products for investors.

               

Asset-backed securities as a letter of participation (“EBA-SP”) is an asset-backed securities issued by the issuer of the portfolio in the form of collection of accounts receivable and serves as a proof of ownership proportionately on collection of accounts receivable that are shared by a group of holders of EBA-SP. EBA-SP issuance agreement must be made in notarial deed by Notary

EBA-SP can be offered through a public offering in which the issuer is obliged to submit a registration statement to the OJK, or not through the public offering which is not obliged to submit a registration statement to the OJK. EBA-SP offered through public offering shall be rated by a Rating Agency Securities.

A secondary housing financing means an organizing fund distribution for a medium term and/or long term to the original creditor through: collection of accounts receivable purchase from original creditor and sell it through the issuance of EBA-SP; or collection of accounts receivable  purchase from original creditor out of the proceeds of the EBA-SP.

Requirements of Issuing EBA-SP

Parties issuing EBA-SP shall meet the following requirements:

a. A limited liability company that conducts secondary housing financing;

b. Has a paid up capital of at least:

(i)Rp 1,000,000,000,000,00 (one trillion Rupiah), if issuer buys Financial Asset from original creditor using its own funds and sell it to the holder of EBA-SP through the issuance of EBA-SP; or

(ii)Rp 250,000,000,000,00 (two hundred and fifty billion Rupiah), if issuer buys Financial Assets from the original creditor using the proceeds from the issuance of EBA-SP.

c. Have at least two (2) directors, of which at least 1 (one) director has expertise and/or experience in the field of securitization or a certificate of proficiency in the field of investment management;

d. Have employees who have work experience of at least 3 (three) years in the field of mortgage analysis; and

e. Have a sales force which at least has a certificate of proficiency in the field of Capital Markets.

Financial Assets forming EBA-SP collection of accounts receivable must be:

a. Obtained by the issuer from the original creditor through the one-off sale and purchase and sold by the issuer to holders of EBA-SP through one-off sale and purchase; or

b .Obtained by the issuer for the benefit of holders of EBA-SP from the original creditor through the one-off sale and purchase.

One-off Sale and purchase shall be supported by opinion of legal consultants and conducted in accordance with generally accepted accounting principles and are consistent and supported by the opinion of accountants.

Issuer or original creditor may only make purchases on Financial Assets in EBA-SP collection of accounts receivable at most 10% (ten percent) of the total value of the collection of accounts receivable.

Proof of EBA-SP Ownership

EBA-SP may be included in collective custody at the Central Securities Depository (“LPP”) or not included in collective custody at the LPP. In the case of EBA-SP included in collective custody at the LPP, the issuer and/or the custodian bank shall issue a certificate of EBA-SP or written confirmation to the LPP as proof of registration in the register of holders of EBA-SP at the issuer and/or custodian bank and in the case of EBA-SP is not included in collective custody at the LPP, the issuer and/or the custodian bank shall provide proof of ownership of EBA-SP in the form of a letter EBA-SP or EBA-SP collective letter to the holders of EBA-SP. Holders of EBA-SP has the right to acquire, as follows:

a. Financial statements of EBA-SP on a periodical basis;

b. Information on the taxes levied on holders of EBA-SP; and

c. Related payments of EBA-SP.

Registration Statement for a Public Offering of EBA-SP

Registration statements for public offering of EBA-SP filed by the issuer to the OJK in the following way:

a. Submit registration statement;

b. Registration statement filed in 2 (two) sets;

c. Enclosing the following documents:

  1. Transaction documents EBA-SP made in a notarial deed by Notary;
  2. The final draft of the prospectus;
  3. Sample (specimen) certificate of EBA-SP;
  4. Inspection report and a legal opinion related to the issuance of EBA-SP;
  5. Accountant’s opinion related to the accounting aspects of the issuance of EBA-SP;
  6. Documents containing the results of the rating EBA-SP of Securities Rating Company;
  7. Underwriting agreement (if any);
  8. Apreliminary agreement with one or more Stock Exchange, if the EBA-SP will be listed on the Stock Exchange; and
  9. Additional information on demand by OJK which is deemed necessary in the review of the registration statement, as long as can be made public without harming the interests of the issuer or other affiliated parties in the process of public offering.

Issuer, Trustee, Custodian Bank, the Original Creditor and Service Providers

Issuers conducting the public offering shall comply with the rules regarding the booking and allotment of securities in a public offering and are responsible for providing compensation to the holders of EBA-SP for the losses due to the fault or negligence caused by the issuer.

Trustees have a responsibility to represent the interests of holders of EBA-SP in and out of court and are liable to provide compensation to the holders of EBA-SP for damages due to negligence in the execution of their duties.

Custodian banks have a responsibility to do the collective custody and safekeeping of all valuable documents relating to EBA-SP in accordance with the custody agreement, other agreements in a transaction document EBA-SP, and laws and regulation. Custodian bank shall also be responsible for providing compensation to the holders of EBA-SP for damages due to negligence in the execution of their duties.

Original creditor is responsible to:

a. The validity of Financial Assets that are sold and their documents; and

b. To provide compensation for losses caused due to the invalidity of sold Financial Assets and their documents.

Service providers have responsibility to process and oversee the smooth running of the debtor's payment made in accordance with the provision of services agreement, the agreement in a transaction document EBA-SP and regulation.

The Extraordinary General Meeting of EBA-SP

General meeting of holders of EBA-SP held by the trustee which aims to:

a. Make decisions with respect to the proposed issuer, the trustee and/or holders of EBA-SP, such as:

                1. Dismissal of the trustee; and/or

                2. Dismissal of custodian bank; and appoint a replacement.

b. Give notice related to the failure or potential failure of the trustee and/or custodian bank in carrying out its obligations;

c. Provide guidance to the trustee, and/or approve a leeway of time on an omission by the trustee agreements and their consequences, or to take any other action with respect to negligence;

d. Give authority to the trustee to take any other action that is not authorized or is not contained in all the authority of the trustee agreement is not prohibited by regulation and OJK approved; and

e. Gave approval for the revision of the agreement in a transaction document EBA-SP which is material.

Reporting

Issuers are required to report sales results of EBA-SP offered through a public offering to the OJK every 15 (fifteen) days from the commencement of the public offering to the public offering is completed. Issuer and trustee EBA-SP is obliged to submit the plan to change the transaction document EBA-SP to the OJK and announce to the public through the newspapers Indonesia with national circulation and available for holders of EBA-SP later than 15 (fifteen) working days prior changes made.

Erinda Resti Goesyen




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Indonesia Real Estate Law – Guidelines for Issuing and Reporting Asset Backed Securities in the Form of Participation Letters Within the Framework for Secondary Housing Financing
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